Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over Meridian Bioscience's (NASDAQ:VIVO) trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Meridian Bioscience:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.25 = US$101m ÷ (US$450m - US$47m) (Based on the trailing twelve months to September 2021).

Thus, Meridian Bioscience has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Medical Equipment industry average of 8.2%.

Check out our latest analysis for Meridian Bioscience

In the above chart we have measured Meridian Bioscience's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

It's hard not to be impressed by Meridian Bioscience's returns on capital. The company has consistently earned 25% for the last five years, and the capital employed within the business has risen 75% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Meridian Bioscience can keep this up, we'd be very optimistic about its future.

The Bottom Line

In summary, we're delighted to see that Meridian Bioscience has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. However, over the last five years, the stock has only delivered a 33% return to shareholders who held over that period. So to determine if Meridian Bioscience is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.